Get to $100m ARR While Burning Almost Nothing: 6 Learnings in 6 Years

Want to know who has sold over a billion dollars in subscription products? There aren't too many. And we've got perhaps the only one. Welcome back. Second time Saster Annual speaker and Executive Vice president of RPX Corporation. Malin. Yeah.

So Eric, I am so happy to be here with you today. Thank you. So many of you may have noticed that the title of this talk used to be Building a super efficient pre get 60 spend 6. But due to some events of a couple weeks ago, we had to change the title. And so we were going to change it briefly to Building a Super Efficient Unicorn. But Eric is so humble and so modest, he said we can't use the U word.

So.

We'Ve changed it again. But you know What? Getting to 100 million ARR while burning almost nothing is pretty good, I think so. Congratulations on your recent raise, Eric and your phenomenal growth. Thank you. Now I think the hard part starts, right? So you started Zoom six years ago?

Yeah, five and a half.

Five and a half years ago. So take us back. What was it like leaving WebEx and deciding, okay, I'm gonna start another video company.

It's not an easy decision cause it was very emotional. You know, I was one of the first several founding engineers. Ultimately I became vice president of engineering at WebEx. You know, I was there for so many years and sort of the product is your baby, right? And also you build a product. I have so many team members there. Every time I thought about I'm going to leave, it's really hard, it's very emotional. But finally I made it.

And so, okay, so then you leave and you decide, okay, I'll just start a company.

Let's see. Before I left, I did spend a lot of time talking with all kinds of customers. Because the market we are playing is the video conferencing market is sort of very crowded. Many friends told me that it's too crowded. You cannot build a sustainable solution. But guess what? After I talk with all the customers, none of those customers, they feel happy. All the solutions they are using, they do not feel comfortable. That's why I saw there's the opportunity for me to build a much better solution.

So take us back to the early days. So you have this idea, you know, that the customers aren't happy and you know, okay, I think I can do this better. I know something about video. And so you go and did you start developing the product first or go raise money first?

For sure we raise the money first. So. And you know, this is tough part, you know, to raise money as probably that's one of the key lessons I learned. You know, we live in Silicon Valley and we have advantage to have access to many great VCs and also great investors. But to find the right investor and VC is really not easy. And you know, many VCs there always tell you they are better. However, I think our philosophy is to find an investor who would like to invest in me, not just in our business. Because the business can be up and down, original funding ideas might default to being wrong for the market, which caused one to pivot the business. So if that happens, and if your investors, they invest not in you, in your business, guess what, you know, there's a conflict down the road, right? So very likely, you know, we see they might bring in the new CEO, they are going to replace you, right? So you know, however, to find the investor who you know are going to invest in you, not your business is very tricky because almost everyone of them, they tell you they are interested in investing in you. So you got to test them. So in my case, I did a lot of tests. That's why I found an investor who truly bet on me, invested in me. So my analogy is more like say when you were young, you thought about who to marry. So for sure you, you wanted to marry the one who really liked you or love you, right? And you do not want to date the one who always asks about, hey, how much money you have, how healthy you are, what's your family background. I think that's not sustainable. So ultimately I found an investor who really like to invest in me.

So that's learning, number one, right? Go with the investors who invest in you, parentheses or someone you might want to be married to. Yep, got it. Okay. So after your seed round, you raised 6 million in an A, 6 and a half in a B, 30 in a C, and now 100 million. And so when you took the 30 million in your C, which was led by emergence, you had all of the previous round in the bank, right? And then now that you've raised the 100 million from Sequoia, you have all of the 30 million in the bank. So tell us a little bit about this philosophy. Why raise if you have all of the money previously still in the bank?

So in our case, for any new initiatives, we always would like to test water first and then we double down or triple down on that. So quite often it will take some time to test water. So after you finish testing the water, you try to double down something if you do not have a budget, right? And at that Time you thought about reasoning wrong. It probably takes some time. You know, the opportunity window might be gone. So that's why, you know, we always thought about if we should have enough budget in case there's a huge opportunity down the road, we can double down on that. So ideally, you know, you really focus on the customer experience. Make sure your customer happy. And if you do that, the VCs, they are going to know you, they probably are going to stop by to ask about if you need money or not. In that case, even if you do not need the money, you better take it because in the future you have more opportunities down the road and make sure you have the capital ready.

So do you ever get pressure from your investors who have put in, say the six and a half and then the 30 and now the 100 to say, Eric, we gave you the money not to have it sit in your bank account?

I think I mentioned we already married with them, right? So I do not think they're going to give us pressure. But for sure we wanted to, you know, spend, I think, you know, you know, smarter way. You know, we cannot like burn all the money. So we always thought about how to spend more but burn less. You know, every day we think about if we invest this month, this quarter, can we be, you know, cash flow positive or reach profitability next quarter or next month or not? You know, every time, you know, every month, you know, we test it.

So that's worked well for you till this stage. Do you think that will work for you for this next stage going forward? And could your growth have been even higher if you had actually spent more?

I think ultimately we do not want to grow too fast because our philosophy is we really focus on making our existing customer happy. We do not provide aggressively, pursue the new prospect. And also we always prioritize the features requested by our existing customers over the new prospect. Because we truly believe if you do not make your existing customer happy, even if you get more new prospect, it may not be sustainable. That's why I think I always share with my team is, is more like I drive here from San Jose to San Francisco. If I drive like, you know, 18 miles, one hour and I might get here one hour, right? What's this like 65 miles per hour? Maybe, you know, just a similar 15 minutes. But however, the risk is very high, may not be manageable because, you know, you might get a ticket, drive too fast, you know, your car might crash, right? Because of the road conditions. We really want to focus on the sustainable growth, focus on existing customers. Rather than aggressively targeting the new prospects.

So. The learning number two to summarize what you said a moment ago was basically don't wait till you need it to raise, right?

That's right.

And in fact you were fortunate enough that you actually weren't even looking to raise when you were approached by some of the investors.

Yeah. By the way, also many people told me that actually if you needed to raise money, you may not get it. However, if you do not need money, it's very likely you will get it. I have no idea why this is the case, but I can tell you that's absolutely right.

So let's talk a little bit about the spend more, burn less and how are you able to go to 100 million ARR while spending very little. So you went from 0 to 100 million in five and a half years. Tell us actually a little bit about how the first revenue came. Like tell us about your first six figure deal, your first sales.

Maybe let me share with you a little bit about the first deal and then I can share with you the big deal. I think the first deal is I really appreciate Stanford because Stanford Continuing Study Group is our first customer and even before our solution ready give us a huge confidence. Right. So at that time no sales team, no marketing team, just the engineers. We saw that a solution and give us a greater confidence. So in terms of the six figure deal, I think that's the first one. I think also important one because sorry, I don't want to mention the company name. That company got a new cio. The new CIO came from Microsoft. That time we spent a lot of time. I'm pretty sure they are going to standardize on Microsoft solution. However, he did not do that and his IT team is very smart. They tested 42 solutions out of there. I probably only knew a dozen solutions.

I was going to say I didn't know there were 42 solutions.

I do not know. They tested 42 solutions. Finally they pick up three and then they also did not make the final decision and they give the. They pick up the employees across multiple departments and they choose 100 employees. Give them 90 days to test the solution. Finally 99 out of 100 employees, they selected Zoom and we got that big deal.

Was this your. I'm sorry, this is your first six figure deal or this is the first. This is not the continuing education. Okay.

Yeah, it's a big deal. Yeah.

And so were you worried during that 90 day period?

Yeah, before because we thought we are going to lose that deal and I was very nervous at that time. But anyway, so we got to give the credibility to that company, CIO.

So zero to 100 million in five and a half years. What revenue bucket do you think was the hardest?

I think to get the first 1 million. Yeah. MMR is very difficult because nobody know you and also. And you won't. At that time, we only have engineer team. We, you know, we do not have marketing team because, you know, we did it on purpose. Right. So before we reach 1 million, we do not want to create a marketing team, only sales team. You know, we do not want to, you know, of course, most of the leads are organic leads. We do not want to spend money to generate leads. I think the first 1 million MMR is very, very hard because just the sales team, just to sell.

And did you have a VP of sales or a head of sales on board during that time?

Yes. You know, after our founding team, we closed several deals and we hired a VP of sales and he hired a bunch of the sales guy. So. Yes.

So one of the things that I've heard you say. Well, actually, let's look at this for a second. So those of you who live in the Bay Area have probably seen these billboards. And so I first saw this billboard and where did you first get this idea for a billboard?

When I came to the Valley in 1997, somehow I fell in love to the billboard. At that time I was thinking, someday when I start a business, I will have a billboard.

And it loves you back, apparently. So. So describe your approach to billboards, because this was the single billboard in 2015. And then fast forward two years later, we have not only billboards, but we have. And I think we cut off the picture of Steph Curry in there, but he's in there as well. So we've got what the warriors, you've got the airports. So tell us about your philosophy behind this approach, because we know that you're very frugal, right? You can't just be buying, you know, sponsoring the warriors for the heck of it.

So when it comes to spending, you know, we always test the water and then we decide are we going to double down or not? You know, it's for the billboard. Any marketing initiatives that's also the same, you know, in terms of billboard, actually, we do not know. You know, even today, I still do not know if it works or not because it's more like, you know, on a brand. Right. To promote our brand. It's hard to manage a brand within a shorter period of time. However, after we had the first Billboard. My neighbor, you know, she told me that I saw your billboard. I think, wow, this is great. And then I told my marketing team, let's have another one. And soon a lot of other people, they see we saw your billboard. Okay, let's find a third one. So we keep adding more and more. Probably we have four, four or five billboards now.

And so I meant to buy stock in all the companies that sell the banners in the airports before I asked you this question on stage. But I didn't. But I'm going to ask it anyway, which is then you started showing up in all the airports as well. And from there, did you know that from what would happen when you started being in the airports?

I think first of all, in terms of brand awareness, certainly in helped us a lot. Right. So a lot of business knowledge workers, whenever they travel, they saw our billboard. However, I think even today, you know, I think most of our leads are still coming from organic growth, you know, not from those billboard, from any airport as easy.

Yeah. So marketing is hard to get. Right. We all, we all know that. And so how do you see this approach fitting in with marketing? Because it's organic growth. This is, this is not how much of this results in lead gen.

It's not that much at all. Again, our lead generation, I think primarily coming from our organic leads. So our existing happy customers refer to other customers. A lot of freemium product also give us a lot of qualified leads. Again, this is just the brand awareness. Maybe in next two to three years, looking back, we will know, okay, if, if this is effective or not.

So do you do any lead gen marketing, everybody?

Yes, for sure. Today I talk with you, I try to get a customer, you know, so I think essentially all of us, marketing, sales, engineer, product, we all work on selling as well.

You know, freemium is another thing that can be hard to do. Right. And you still have a freemium product today. So tell us a little bit about that.

I think it's very important because, you know, in our case, you know, we really want to get, you know, the customers to test our product. Right. Is this market is extremely crowded. It's really hard, you know, to tell customers. You got to try zoom. You know, without a freemium product, I think you are going to lose the opportunity you have to let many users to test your product. We make our freemium product work so well. We give most of our features for free and one to one is, you know, no limitation. That's why almost every day there's so many users coming to our website. Free users. If they like our product, very soon they are going to pay for the subscription.

So you basically give them all the features as opposed to a subset of the features, but you cut them off at 40 minutes. Right. Is that what.

Yeah, so you're right. Sorry, I forgot to mention that. So one to one is always free. More than two, up to 50 participants. The meeting has a limitation. Duration is 40 minutes. Because I came from WebEx, I built that product. We know the most effective meeting in terms of duration is 45 minutes. So that's why we give you 40 minutes.

So know your customer and know when to have the conversation cut off midstream. Right. Okay. So. So the key to what's allowed you to conserve your cash is basically, Eric does not allow anything to be funded until you prove it works. And then once you prove it works, you go big. Like the billboards.

You double down for anything.

Anything.

Anything. Not only a billboard, for almost everything. We always keep that philosophy.

And so you talked a little bit about this next one already, which is don't grow too fast, which in some ways can be counterintuitive. But I like your analogy, right. Of you can get from San Jose to San Francisco, but if you go too fast, you might have an incident on the way here.

Because if you always think about growing fast, pretty sure you always think about how to get more customers. Most prospect. Right. If you do that, you probably are going to lose the focus to focus on making the existing customer happy. But the most important thing is to make sure the existing customer happy rather than chasing up the new prospect.

And so I know your NPS score is something that you're proud of. So what is that again? Your NPS score?

69 last quarter. The quarter before is 68, obviously in that 67 to 69 rand.

And without mentioning any names, what are your peer companies hovering around?

I don't want to mention the name, but none of them above 20, so.

And NPS is something you focused on from day one, would you say?

Yes. Yes.

Yeah. So let's. The next one, which is. Okay, so another thing that's always of great interest of the folks here, and in fact, it was a panel that I was on yesterday with, which is, how do you hire a management team? How do you hire your first management team? Some people are of the theory that you hire the natural athlete and allow them to grow into the position. Others are, okay, the person that you hire who can bring you from 0 to 5 million or 10 million is not the person who can take you to 5 to 100. What's your philosophy?

So our philosophy is we always hire those people with the potential for growth. I really hated the idea of, you know, hiring those over qualified people because we truly believe there are multiple benefits by doing that. Right. If you hire the, you know, either managers or leaders, employees with potential for growth, you know, first of all, they're loyal to a company and secondly, they would like to adapt to your business rather than we adapt to them. Right. And also they tend to be more humble, you know, rather than rest on what they accomplished in the past. So, you know, take our, you know, head of sales, Greg Holmes, for example. You know, before I hired him, many of my friends, they told me that you got to hire a VP of sales who already work for somebody else. You cannot hire, you know, just direct level person. I think no, because, you know, he has a huge potential because his self learning mentality, self motivation mentality also have a huge positive impact to other employees. So, you know, since then, you know, almost for every position we always hire for the potential with potential growth. We do not hire those people in too qualified.

I think you told me that your entire management team now is the original management team that you hired.

Yes. At least nobody left yet.

Yeah. Or no one's been replaced or topped. I guess there's a word that appears on this slide as soon as it appears, that appears seven times on this slide. Can you guys figure out what that word is? It's happy or happiness. So talk about being happy. In fact, it's Even, I think three times on your LinkedIn title. Tell us about happiness.

This sort of back to my personal story. So before I left Cisco to start a company, I always thought about what kind of company I wanted to build. I wanted to work for. I know to build a long term successful, sustainable company is a long journey. It's really hard, not easy. And as you work on something very hard for many years, see you are successful. But guess what? You might celebrate for one day, right? If you are crazy enough, you might have celebrated one week. But however, looking back many years of hard work, I think that's most important thing. So Autocom is more important. I think the process is more important than Autocomp. And during that journey, if you do not build a company to deliver happiness to your employees, you feel like it's kind of like a torture to your employees. Many years of hard work, employee every day when they wake up, they really don't want to go to office to work. I think that's not a company I wanted to Build. I really want to make sure every employee, many years after they retire, when they look back, they can enjoy a sweet memory of those happy moments they shared at Zoom.

So that leads to the sixth learning, which is culture is number one. And I want to close with just two questions, actually. The first is what's the hardest thing you've had to go through in building Zoom?

I think along the way, sometimes you do not know what triggered that. Suddenly you wake up in the night, you see so many problems down the road. Suddenly you lost confidence. But however, the good news after you wake up the following day, you're okay. I think that's the hardest part. Suddenly, at that moment, almost everything is wrong. You sort of, do I work on the right thing? Are those customer happy? Are those employees happy or not? Right. Suddenly you lost the confidence during the night sometimes.

So was there a point when you thought, you know what, maybe we're not going to make it?

Yeah, it's just maybe once, maybe once a year. Maybe maybe once a year. Good news, not in the daytime. So no impact to our employees.

And would you say it's the first million dollars that's the hardest for you or what was the hardest point for you?

The first, first meeting, for sure is the hardest part because we do not have a marketing team, just engineers and just a bunch of sales guys. We did it on purpose. We really want to test is this product happy or not? Can we deliver happiness to our customer? Not. We do not want to spend money on marketing side to generate leads. So that's why the first one meaning is very hard. It's more likely to test water. If we know we can deliver first, one minute, we, we know we can deliver second, third.

So finally. So given the recent events and Jason talked a little bit about this in his opening, given the recent executive order. What are your thoughts on the executive order and the limitation on immigration? You're an immigrant and you're a founder and what can you share with us?

So the way I look at this, you know, the reason why I would say that it's take a Silicon Valley, for example. The reason why Silicon Valley is a worldwide innovation center is because we embrace diversity. Right. You know, a lot of companies founders coming from, you know, all kinds of background, that's where the innovation coming from. If you lose that, I think down the road, you know, I think, I do not know what, what is going to happen for sure. You know, I'm an immigrant, right. I think, you know, all the high tech companies, I think, you know, it's hard to see, but I really think that it's not a smart decision.

Well, great. Any final thoughts? Eric, you want to share?

I want to say special thanks to Jason and when I stopped by, I feel like for all the software service company, this is our super bowl moment. Right. So we got to enjoy and have fun. Thank you.

Great.

Sat.